Finance Commission is a very important constitutional bodies whose recommendations have an impact on the nature of fiscal federalism in the country. The controversy over the ToR have to be understood and the reasons examined, and the overall impact of the FC’s ToR analyzed. Hence this topic is important.

Key demand of the question:

The question is directly asking us to examine the ToRs and explain the various issues in the ToR which might have an impact on Fiscal Federalism. Our own stand is also needed here.

Directive word

Critically examine – Have to present the ways in which ToR of FC and performance of FC (in past) has strengthened Fiscal Federalism. On the other side, we also have to examine how the ToR would affect state autonomy in handling its finances. Then a balanced view needs to be stated.

Structure of the answer

Introduction – Discuss fiscal federalism in brief. Move to the ToR then and highlight the sense of why the protests are happening.

Body: Discuss the issues in ToR one by one. The primary ones being

Issue of Deficit Grants

Issue of 2011 population

Shortage of states revenues

Merit of the proposal of performance based incentives for the states

Whether ToR goes beyond the constitutional mandate of the FC

Mention both sides of the coin

Conclusion – Write your stand highlighting the importance of taking states along to strengthen cooperative federalism